There seems to be a growing urge among investors to get long gas-levered names. We would put Range Resources (RCC,
BUY, $82) at the top of the list. However, we believe there is still
downside risk to gas.

Things are likely to get ugly in the third quarter
as storage fills up, and not just for gas producers. If we assume
storage builds at a rate equivalent to the five-year average over the
next six months, inventories will hit the tested maximum of 4,150 Bcf by
mid-September.

If we assume in September demand is 58 Bcf/d, net
imports are 4 Bcf/d, and domestic production is 64 Bcf/d, there will be
10 Bcf/d of production with nowhere to go. Shutting in the Haynesville
or the Gulf of Mexico in its entirely would not be enough.

At first,
line pack is likely to force low pressure gas wells to shut in. As the
system backs up further, the potential for pipelines and storage
facilities to declare force majeure increases. This may force producers
to substantially curtail gas production, which, given wells increasingly
produce a mix of liquids and gas, could adversely impact oil and NGL
production as well. It could take until late December for winter demand
to have increased enough for producers to begin unwinding production
curtailments....MORE

That Range symbol is a typo, RRC. Range is a class act with plenty of liquids rich acreage in S.W. Pennsylvania.